If you are required to work from home and you have your internet connection in your name, then it's likely you can claim part of your internet expenses as a deduction. How? Simply calculate your monthly work use, across one full month, then calculate the work-related portion as a percentage of the total household use.
Example for Internet Expenses:
Joe lives on his own and pays $60 per month for her internet connection that is in his name. He kept a log for a month and found that 40% of his home internet use is for work purposes.
40% of $60 = $24 per month
$24 x 12 = $288 per year
Joe can claim $288 of Internet deductions on his tax return this year.
Please note: If you share the cost of internet with a spouse, partner or housemate, you should only calculate the percentage of total internet cost that applies to you. For example if you live with your partner it would be assumed, you each pay half of the bill. Therefore in the example above, Joe would only use 50% of the total Internet cost ($30 per month) in his expenses calculation as his partner would use the other 50% on their tax return.
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Work Related Car Expenses
If you are required to use your personal car for work-related reasons, apart from driving to and from work, you can usually claim fuel and maintenance costs as a tax deduction. There are two methods for claiming work related motor vehicle expenses and each have a different record keeping requirement.
To use the method that ensures you the best claim it is advisable to keep a log book and all receipts for expenses (e.g. insurance, registration, repairs, services, tyres, etc.). You do not have to keep receipts for petrol as Murray Nankivell can work that out for you using a yearly average formula. Your log book should be kept for a minimum of 12 consecutive weeks and generally it will be valid for five years unless there are significant changes in your circumstances. You also need to keep the opening and closing odometer reading for each year.
The ATO defines work-related kilometres as kilometres travelled in your car while you are earning your income. To be eligible, you must be the owner of the car and your travel must be part of your working day – e.g. driving between offices, special trips to the post office or bank (not including stop-offs on the way home) or moving from one job site to another. Remember, you cannot claim trips between work and home unless you're carrying heavy equipment for work, or transporting heavy tools required to do your job.
Depending on your personal circumstances, either a logbook or the cents per kilometre may be a better method for you. If you're unsure which to use, one of our accountants can calculate both methods and then choose the method gets you the biggest tax deduction.
It is not necessary for you to use the same method each year. The choice of method should be made on the basis of which is more favourable to you and which you have the appropriate records for. If you don't have a current logbook or have not retained all receipts you will be limited in which method you can choose.
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With many employees putting in extra hours in the evening and at weekends, and many employers moving to flexible working environments where an office space isn't necessarily provided, it's becoming increasingly common for people to work either partly or wholly from home.
If you've set up a home office in your study or converted a spare bedroom into a work space, you need to be aware of the potential tax deductions you can claim when you come to complete your 2018 tax return.
Here's a list of the top five deductions you could be eligible for:
1. Heating, Cooling and Lighting Bills
You have to heat your home office in winter and keep it cool during summer. You also need light to see what you're doing! That means that you can claim the proportion of utility bills that relates to the time you spend working in your home office. You can't claim for periods when the home office is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.
2. Depreciation of Home Office Furniture and Fittings
If you kit out your home office with furniture such as a desk, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That's likely to lead to a write-off of the cost over several years (the 'effective life' of the asset).
3. Depreciation of Office Equipment and Computers
Similarly, if you purchase items of technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:
- Mobile phones
4. Low-Cost Capital Items
Capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don't need to be depreciated). That could include some of the cheaper tablets and mobile phones, as well as many printers.
5. Other Items
Make sure you claim for the work-related proportion of other costs such as:
- Computer consumables (such as printer ink)
- Phone and internet costs
- Cleaning costs
Many people try to claim a percentage of rent or the interest on a mortgage if they work from home. This isn't allowable. Ideally, you should have a room set aside as a home office. If you are using a room with a dual purpose (for example, a dining room), or a room shared with others (lounge room) you can only claim the expenses for the hours when you had exclusive use of the area.
There's no maximum amount that you can claim. Provided that the amount you're claiming is calculated in accordance with the rules, and that you have the necessary substantiation, you can claim whatever you're entitled to.
There are two methods you can use to calculate a claim:
1. Diary method/actual running expenses
Keep a diary to work out how much of your running expenses relate to doing work in your home office or other workspace. The diary needs to detail the time you spend in the home office compared with other users of the home office. Keep your diary record for a representative four-week period. The 'work-use proportion' you come up with over those four weeks can then be applied to all your expenditure over the year. Of the two methods this usually produces the larger deduction but the record-keeping requirements are more stringent.
You'll also need to work out how big your home office is compared with the rest of your house (using floor area as a guide). This will enable you to calculate the split between costs that relate to the office and costs that are domestic in nature.
2. ATO rate per hour method
Instead of keeping details of actual costs, you can use a fixed rate of 45 cents per hour for heating, cooling, lighting and the decline in value of furniture. You just need to keep a record of the number of hours you use the home office and multiply that by 45 cents.
Finally, a word of warning: It is quite common for people to have insufficient documentation to support a home office claim, particularly for the split between business and personal use, so be sure to keep records.
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Mobile Phone Expenses
Using your personal phone to take and make work calls? Are you sometimes required to call clients or other staff members on your personal mobile phone?
If you answered yes, then you generally can claim these cost of these calls as a deduction on your tax return.
Remember, you can only claim the cost of your work related calls, not your entire phone bill. It's a good idea to keep a logbook or record (for at least one month) of when you use your personal phone, to determine the average percentage of your calls that are work-related.
Example for Mobile Phone Usage:
George pays $49 per month for his mobile phone plan. He estimates that 50% of his monthly phone calls are work related. Therefore:
50% of $49 = $24.50 per month
$24.50 x 12 = $294 per year
George can claim $294 on his tax return as a deduction for mobile phone expenses
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Eligible Courses to Claim Self-Education Expenses
Self-education expenses are deductible when the course you undertake leads to a formal qualification and meets the following conditions;
- The course must have a sufficient connection to your current employment and:
- maintain or improve the specific skills or knowledge you require in your current employment; or
- result in, or is likely to result in, an increase in your income from your current employment.
You cannot claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though it;
- might be generally related to it; or
- enables you to get new employment.
You are a nurse and attend a conference of nursing professionals dedicated to extending professional knowledge in your chosen field of nursing. This maintains your skills in your chosen field of endeavour and is connected to your current income earning activities. You will be able to claim a tax deduction for attending the conference, and all related costs (see below).
You are a nurse and wish to train to become a doctor. You commence a medical degree. This opens up new income earning opportunities in the future and the cost of the course is incurred too soon to be regarded as being incurred in earning your assessable income. The costs of the medical degree will not be tax deductible.
You can claim the following expenses in relation to your self-education;
- accommodation and meals (if away from home overnight),
- computer consumables,
- course or tuition fees,
- decline in value for depreciating assets (cost exceeds $300),
- purchase of equipment or technical instruments costing $300 or less,
- equipment repairs,
- home office running costs,
- internet usage (excluding connection fees),
- parking fees (only for work-related claims),
- phone calls,
- student union fees,
- student services and amenities fees,
- trade, professional, or academic journals; and
- travel to-and-from place of education (only for work-related claims).
If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.
You cannot claim the following expenses in relation to your self-education;
- repayments of Higher Education Loan Program (HELP) loans (although the fees paid by some HELP loans are),
- Student Financial Supplement Scheme (SFSS) repayments,
- home office occupancy expenses; and
- meals where you're not sleeping away from home.
Attending Conferences And Seminars
Even though attending such an event doesn't typically generate a formal qualification, you can also claim the cost of attending seminars, conferences or workshops that are sufficiently connected to your work activities. This can include formal education courses provided by professional associations.
Example: You are a nurse and you attend a two-day professional development conference highlighting the latest advances in your field of nurses. The knowledge you gain from attending this conference will be directly applied in your work when you go back to the hospital where you work. You can claim the costs of attending the course, as well as ancillary costs such as travel, accommodation and meals.
If, as is often the case, the conference or seminar is held somewhere warm and sunny, and you decide to stay on for a short holiday afterwards, you will need to apportion your expenses between conference-related and holiday-related expenditure.
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Rental property expenses
If you own a residential property that is rented (or available to rent) during the year, there are a number of tax deductions that you are able to claim.
Sadly Rental property expenses often go unclaimed. The most forgotten deductions are: bank fees, gardening and lawn mowing, pest control, security patrol fees, secretarial and bookkeeping fees, travel and car expenses for rent collection, inspections of property and maintenance.
See the below list of common costs are available as tax deductions for rental property investors;
- Advertising for tenants
- Property management fees (e.g. paid to a real estate agent to manage the property on your behalf)
- Bank fees paid on the account you deposit the rent into and pay expenses out of and also on any bank loans used to finance the purchase of the property
- Body corporate or strata fees paid (usually only if your property is a unit, flat or townhouse)
- Loan establishment fees paid to your bank to set-up the original loan to purchase the property or if you refinance your loan with a different lender
- Cleaning the rental property (e.g. cleaning carpets, blinds etc. after tenants vacate the property)
- Council rates for the property
- Maintaining the gardens and pool (e.g. lawn mowing, landscaping, pruning, pool cleaning and water monitoring)
- Insuring the property (including building, contents and landlords insurance policies)
- Interest paid on your mortgage (you can only claim interest on a loan that is specifically taken out to purchase or renovate the rental property)
- Land Tax, if you are required to pay it
- Legal fees in relation to your tenants (e.g. if you have to engage a lawyer to collect outstanding rent or to evict a tenant. You cannot claim for the legal fees you pay when you originally purchase the property until it is sold)
- Pest control fees (e.g. to prevent or treat termite or other pest infestations)
- Repairs made to the property, fixtures or plant (e.g. building, bathroom fittings, stoves, lighting, carpets, blinds etc. – you should let us know what specific repairs you have undertaken and how much each repair cost to ensure we claim the maximum amount on your return)
- Maintaining the property (e.g. cleaning gutters, repainting internal or external walls)
- Replacing capital items (e.g. stoves, dishwashers, bathroom fittings, pool pumps, carpets, kitchens, hot water heaters, air conditioners or heaters etc.)
- Stationery, postage, telephone calls and internet access related to the property, collecting rent or undertaking maintenance and improvements
- Travelling to inspect, undertake maintenance and repairs or improvements to the property (this may include travel by car – provide us with the number of kilometres you travelled to and from the property – bus, train or air travel and can also include the cost of accommodation and meals if you need to stay overnight to complete the work)
- Water rates paid for the property
We suggest that you keep receipts for all purchases that relate to your investment property, even if they are not listed above. That way, when an Accountant prepares your tax return they can advise whether you are allowed to claim a tax deduction for them or not.
Murray Nankivell provides a simple Rental Property Statement Checklist for a list of common items that you can claim to help prepare for your appointment with an accountant or lodge your own return with the ATO.
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Overtime Meals Allowance Expenses
The cost of buying meals when you work overtime, provided you have been paid an allowance by your employer (you can claim for your meals without having to keep any receipts, provided you can show how you have calculated the amount you spent).
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Gifts and donations
Check if any organisations you donate to, for example your favourite charity, have the ATO's 'deductible gift recipient' status so you can claim for the gifts donated. A gift can be money or other financial assets, such as property and shares.
Any amount you donate above $2 can be claimed back. For other assets, different rules apply depending on their type and value.
As the name implies, you must have given the gifts voluntarily without receiving material benefit or advantage. This means you can't claim items such as raffle tickets or fundraising dinners.
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Income Protection Insurance Expenses
You're entitled to a tax deduction for insurance premiums paid against the loss of income. Remember though, that this does not include life insurance, trauma insurance or critical care insurances.
Income protection or sickness and accident insurance premiums (this type of insurance covers you if you hurt yourself (including when you are not at work) or become sick and you are unable to work. It will pay you your normal wage until you are fit to return to work – if you don't have this insurance and would like to know more you should see a financial adviser before taking it out, to make sure it is right for your particular circumstance and get a full explanation on what it covers.
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You can claim a deduction for the cost of buying and cleaning occupation-specific clothing, protective clothing and unique, distinctive uniforms (your uniform should have the business's logo on it to ensure it is tax deductible).
Laundry or dry cleaning of your uniforms. You can use a reasonable basis to calculate an amount to claim as a tax deduction such as $1 per load for work-related clothing, or 50 cents per load if other laundry items were included.
The cost of buying any sun protection items required if you work outdoors at least part of the day (including sun glasses, hats and sunscreen).
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